Author Archives: businesslawsuits

Can a Subcontractor Collect Money it is Owed Without Providing Evidence of Why it is Owed that Sum?

When asserting damages under the New Jersey Prompt Pay Act, what evidence should be submitted to the Court? That issue was discussed in United States v. APS Contracting, Inc., CIV. 11-779-KMW, 2013 WL 530576 (D.N.J. Feb. 11, 2013).

In that case, Plaintiff, Cardinal Contracting Company, LLC, filed a motion for final judgment by default against Defendant A.C.C. Construction, LLC (“ACC”) and to amend the pleading. No opposition was filed.
Plaintiff had sued Defendants APS Contracting, Inc. Fidelity and Deposit Company of Maryland and ACC.  Plaintiff alleged that ACC entered into a subcontract with Plaintiff wherein Plaintiff was the sub-subcontractor and was to provide a portion of the labor and material required for the construction project of a Combined Maintenance Facility at the Fort Dix United States Army Installation.

Plaintiff performed under the contract and ACC failed to pay.

The Plaintiff filed suit against ACC for breach of contract and violations of the New Jersey Prompt Payment Act. Defendant ACC was properly served but failed to answer the complaint or otherwise enter an appearance in the case.  The Clerk of the Court entered default against Defendant ACC, and Plaintiff filed a motion seeking final judgment by default.

The Court noted that the New Jersey Prompt Payment Act provides that,

 “[i]f a … subsubcontractor has performed in accordance with the provisions of its contract with the … subcontractor and the work has been accepted …, and the parties have not otherwise agreed in writing, the prime contractor shall pay to its subcontractor and the subcontractor shall pay to its subsubcontractor within 10 calendar days of the receipt of each periodic payment, final payment or receipt of retainage monies, the full amount received for the work of the … subsubcontractor based on the work completed or the services rendered under the applicable contract.” N.J. Stat. Ann. § 2A:30A–2(b). “If a payment due pursuant to the provisions of this section is not made in a timely manner, the delinquent party shall be liable for the amount of money owed under the contract, plus interest at a rate equal to the prime rate plus 1%.” N.J. Stat. Ann. § 2A:30A–2(c). Further, “the prevailing party shall be awarded reasonable costs and attorney fees.” N.J. Stat. Ann. § 2A:30A–2(f).
United States v. APS Contracting, Inc., CIV. 11-779-KMW, 2013 WL 530576 (D.N.J. Feb. 11, 2013)

So far so good. The problem arose when the Plaintiff sought to prove its damages. Plaintiff proffered a very terse certification stating that Defendant failed to pay $74,002.50 and that interest was calculated pursuant to the Prompt Pay Act.  Further Plaintiff certified as to $30,808.00 in attorneys fees.

The Court found that Plaintiff was entitled to final judgment but did not enter that judgment.  It ruled that Plaintiff had submitted insufficient evidence to support its claim for damages. It required Plaintiff to provide evidence in the form of an affidavit with supporting documentation for each aspect of the damages claimed.

Can a Tenant Pay Rent in Advance and Then Stop Payment on the Check if He Decides to Terminate the Lease?

If a lease provides for a rent due date and the rent is paid in advance, is it reimbursable if the lease is thereafter terminated? That issue was considered by the New York State Court of Appeals in Eujoy Realty Corp. v. Van Wagner Communications, LLC 2013 WL 6164508 (Nov. 26, 2013).

In that case, the lease explicitly provided that the tenant would pay the rent in advance for a full year. The lease also provided that the landlord was not required to return any of the rent if it was terminated for any reason. In 2007, the tenant paid $96,000+ for a full year of rent in advance. However, the tenant claimed that the payment was sent in error and that it wanted to terminate the lease.

The Judge ruled that rent paid in advance is not recoverable if the lease is terminated prior to completion of the term. The exception would be if the lease were to provide otherwise. In this case, it did not.

The Court also explained that the tenant was a “sophisticated and counseled” business, and thus it could have bargained for what it wanted when drafting the lease. Therefore, the Court would not require the money to be reimbursed. 

Will the Economic Loss Doctrine Bar a NJ Negligence Claim if That Would Result in the Plaintiff Having No Remedy at All?

Will the economic loss doctrine bar a claim for negligence if by doing so, the plaintiff will be left without a remedy? That issue was addressed in Spectraserv, Inc. v. The Middlesex County Utilities Authority et als., Superior Court of New Jersey, Law Division, Docket No. L-2577-07 (July 25, 2013).
          In that case, the parties were disputing whether there should be damages with respect to the construction of a sludge pasteurization facility in Sayerville, New Jersey. The Defendant argued that the negligence claim relating to that construction was barred by the economic loss doctrine.
          In its opinion, the Court began by discussing the nature of the doctrine itself. It explained that a tort (e.g., fraud or negligence) claim and a contract claim usually cannot be brought under New Jersey law for the same facts. The plaintiff usually must choose one or the other.
“Economic loss can take the form of either direct or consequential damages.” Spring Motors Distribs. v. Ford Motor Co., 98 N.J. 555, 566 (1985). “A direct economic loss includes the loss of the benefit of the bargain, i.e., the difference between the value of the product as represented and its value in its defective condition.” Ibid. (emphasis omitted). “Consequential economic loss includes such indirect losses as lost profits.” Ibid. 
   As the Third Circuit has aptly noted, “[u]nder New Jersey  [*19] law, the economic loss doctrine defines the boundary between the overlapping theories of tort law and contract law by barring the recovery of purely economic loss in tort.” Travelers Indem. Co. v. Dammann & Co., 594 F.3d 238, 244 (3d Cir. 2010)
(internal quotation and formatting marks omitted). “The purpose of the rule is to strike an equitable balance between countervailing public policies that exist in tort and contracts law.” Ibid. (internal quotation and formatting marks omitted). Our Supreme Court has observed that “the purpose of a tort duty of care is to protect society’s interest in freedom from harm, i.e., the duty arises from policy considerations formed without reference to any agreement between the parties[]” whereas “[a] contractual duty, by comparison, arises from society’s interest in the performance of promises.” Spring Motors, supra, 98N.J. at 579.
Id. at 15.
                   However, in Spectraserv, the Court was confronted with an interesting twist (a “case of first impression”). The issue was whether the doctrine would still be applied if the result would be to bar anyclaim. In other words, if the doctrine barred a negligence claim and there were no other claim available to the plaintiff, would it still apply?

          The answer was that the Court found it did not have to reach that issue. It found that there was another claim that could be brought: a breach of contract claim. Therefore, while the Court acknowledged that there suggesting that the application of the doctrine would be prevented if there were no other remedy, here there was another remedy. Therefore, in this case, the doctrine would be applied.

Comments/Questions: gdn@gdnlaw.com
© 2014 Nissenbaum Law Group, LLC

What is Spot Zoning?

What is spot zoning? That was one of the questions before the Appellate Division of the Superior Court of New Jersey in Hal Holding, LLC v. Mount Laurel Township, Superior Court of N.J., Appellate Division, A-1340-10T2 (May 4, 2012.)
In that case, the parties were disputing whether an ordinance passed by Mount Laurel Township requiring a parcel of land to be maintained as a golf course was an invalid exercise of the Township’s authority.  One of the issues in the case was whether that ordinance constituted “inverse spot zoning.”  That is a principle of law which states that when a land use decision “arbitrarily singles out a particular parcel for different, less favorable treatment” than the less favorable ones it will be examined to see if the decision was arbitrary in nature.  Riya Finnegan, LLC. V. Twp. Council of S. Brunswick, 197 N.J. 184, 197 (2008) quoting Pen Cent. Transport Co. v. N.Y. City, 438 U.S. 104 (1978).

In Hal Holding, the Court found that there had been no inverse spot zoning. Although the ordinance “was intended to affect, only one property: the subject property [the golf course], [in order to find that there was inverse spot zoning] the zoning must also constitute arbitrary treatment. Here, given that a purpose of the ordinance ‘was to promote the continuation of open space and natural features adjacent to fully developed residential areas,’ and the subject property consisted of open space (a golf course) adjacent to fully developed residential areas the disparate treatment here is not arbitrary.” Id. at 11.

Comments/Questions: gdn@gdnlaw.com
© 2014 Nissenbaum Law Group, LLC

What is the Standard for a Property Owner to Object to a Zoning Board Decision Based on the Appearance of Impropriety?

May a property owner object to the appeal of a Zoning Board decision solely on the basis that the way the appeal was handled presented an appearance of impropriety?  This question was addressed by the Supreme Court of New Jersey in Kane Properties, L.L.C v City of Hoboken, 2013 WL 3197164 (NJ 6/26/2013). [READ CASE HERE]

In that case, plaintiff applied to the Hoboken Zoning Board to obtain the required variances to develop a twelve story high-rise. During a Zoning Board hearing, the Skyline Condominium Association, Inc. (“Skyline”), objected to the development proposal. However, the Zoning Board granted the variances to plaintiff anyway. Skyline appealed to the Hoboken City Council challenging the approval of the plaintiff’s variances.

However, an issue arose when the attorney for Skyline, Michael Kates, Esq., was appointed to serve as Hoboken’s Corporation Counsel. Although he resigned as counsel to Skyline, nevertheless, Plaintiff objected to Kates’ participation in the proceedings before the City Council respecting the same matter. Accordingly, Kates recused (separated) himself from participating in those proceedings.

The City Council considered whether to reverse the variances given to plaintiff. Although Kates was supposed to have totally recused (separated) himself from those proceedings, he did become involved in aspects of them. Indeed, as the Supreme Court would later note, “Kates acted as counsel to the governing body, he answered questions from Council members, he advised them on voting procedures, and he signed the resolution following their vote to indicate he had approved it.” Id.

Ultimately, the City Council approved the Zoning Board’s decision. Plaintiff initiated an action in the Superior Court of New Jersey challenging the city’s decision. Ultimately, the matter was appealed all the way to the Supreme Court of New Jersey.

The Supreme Court found that Kates had violated a requirement that is normally applied to Judges: whether the action or inaction evokes the appearance that there has been an appearance of impropriety. In other words, even if technically each thing he had done was not an actual conflict of interest, taken as a whole, they appeared improper.

The Court noted that normally the appearance of impropriety standard applies to Judges, but nevertheless, when the attorney is advising a quasi-judicial body, the standard can also apply to the attorney. In this case, the City Council was considering an appeal of the Zoning Board’s determination, and that put it in a quasi-judicial capacity. For that reason, Kates’ activities were covered by the appearance of impropriety standard. Since he violated it, the Supreme Court sent the matter to the Law Division of the Superior Court of New Jersey to consider it anew in light of the Supreme Court’s ruling.

Comments/Questions: gdn@gdnlaw.com
© 2014 Nissenbaum Law Group, LLC

Does the ten year period of repose begin after a certificate of occupancy is issued?

Does the ten year period of repose begin after a certificate of occupancy is issued? This question was answered in the negative by Fairview Heights Condominium Association, Inc. v R.L. Investors, Superior Court of New Jersey, Appellate Division (Docket No. A-3128-11T3).

In that case, construction of a condominium building owned by defendant was completed in 1988. Plaintiff filed a complaint against defendant two years after purchasing the condominium building from defendant in 2001. The lawsuit alleged that plaintiff had suffered damage from hazardous construction defects.

Defendants moved for summary judgment, which was granted. Although the Court found that the condominium building was in an unsafe condition due to defective construction by defendants, it determined that the claim was barred since

“the statute of repose bars any action whether grounded in contract or torn arising out of the defective design or construction of an improvement to real property or arising out of the defective and unsafe condition of an improvement to real property.”

Fairview Heights I, supra, No. A-0225-10 (slip op. at 15-16).

Plaintiff appealed, and the Appellate Division affirmed the lower Court ruling.  

In its determination, the Appellate Division cited the Supreme Court of New Jersey’s decision in Russo Farms v. Vineland Board of Education 144 N.J. 84 (1996). In that case, the Supreme Court held that the test for determining when the statute of repose would begin to run would be the point at which the construction had reached a stage of substantial completion.

The Appellate Division noted that this was in keeping with the trend among the majority of states. It determined that

“…the triggering point is tied to substantial completion of the construction project itself, rather than other factors such as obtaining a certificate of occupancy or, as plaintiffs would urge here, relinquishment of control…”

Id. 12

Is sum, the Appellate Division held that the claim was barred by the statute of repose because it would be unfair to permit the claims against defendant that are made more than ten years after substantial completion of the condominium building. 
Comments/Questions: gdn@gdnlaw.com
© 2014 Nissenbaum Law Group, LLC

What is the Time Limit to Sue for Deficient Design, Planning, Surveying, Supervision or Construction of an Improvement to Real Estate in New Jersey?

Does the time period to sue for deficient design, planning, surveying, supervision or construction of an improvement to real estate in New Jersey run from the substantial completion of a phase or component of a construction project or from completion of the entire project? This question was answered in State of New Jersey v. Perini Corporation, 425 N.J. Super. 62 (N.J. Super. Ct. App. Div. 2012).

In that case, the centralized underground system that distributed hot water through South Woods State Prison began to fail in 2000. The State of New Jersey claimed that the defects of the pipes were so serious that the entire system needed to be replaced. If not replaced, the prison would have to be shut down and all prisoners would have to be relocated. Plaintiff claimed the defects were a direct result of construction defects, product failure and design deficiencies. The state filed suit against companies that were responsible for the construction, materials and design of the system three days short of ten years from the date the certificates of substantial completion on the prison construction project were issued by the State.
The defendants argued that the claims were brought outside of the ten year limitation of the New Jersey Statute of Repose, N.J.S.A. 2A:14-1.1, which states:

No action, whether in contract, in tort, or otherwise, to recover damages for any deficiency in the design, planning, surveying, supervision or construction of an improvement to real property,…nor any action for contribution or indemnity for damages sustained on account of such injury, shall be brought against any person performing or furnishing the design, planning, surveying, supervision of construction or construction of such improvement to real property, more than 10 years after the performance or furnishing of such services and construction…

Plaintiff responded that the period should commence at a later point, namely when the certificates of substantial completion of the prison construction project were issued.
The court first noted that there was substantial precedent for the principle that the “ten-year statutory period runs from substantial completion of a component of a multi-phase construction project, not the completion of the project as a whole” Welch v. Engineers, Inc., 202 N.J. Super. 387 (App. Div. 1985).  However, the court also recognized that the above principles would not necessarily apply to multi-phase projects. The determination would hinge on the  meaning of the phrase, “improvement to real property” found in the Statute of Repose.
The Court found that:

The hot water system was not separately “an improvement to real property” within the meaning of N.J.S.A. 2A:14-1.1a. It was a component of an improvement, similar to the steel framing of a building, its roof, any mechanical or electrical system, or other components of a construction project

The Court noted that multiple phases of a construction project that are properly documented as separate projects in and of themselves can prompt separate periods of repose. In this case, however, the hot water system was not documented in that manner. Therefore, the statute of repose did not separately run from the point of completion of the hot water system.

If a Home Improvement Contract Violates the Requirements of the Consumer Fraud Act May the Contractor Recover for the Value of the Services Rendered?

The Consumer Fraud Act (“CFA”) aims to protect New Jersey consumers from unfair and unethical trade practices. In part, the CFA attempts to do this by requiring businesses to disclose certain information in writing when dealing with consumers. The CFA’s goal is to promote truth and fair dealing in the market place.           
In Gemini Restoration Inc. v. Dr. Joseph Leoneet. al., A-6171-09T4 (N.J.Super. App. Div., August 3, 2012), a dispute arose between a homeowner (“Defendant”) and a contractor (“Plaintiff”) in regard to the performance of home renovations. Defendant hired Plaintiff to perform extensive renovations on his home because Defendant’s architect and friend, Christine Miseo (“Miseo”), recommended him for the job. The original contract between the parties was for the estimated total of $221,735.55.  Id.at 2.
After Plaintiff began the renovations, Miseo sought a series of additions to the scope of the renovations. Plaintiff did not prepare a subsequent contract incorporating the additional work. However, he did submit to both Defendant and Miseo detailed bills reflecting the additional cost of labor and materials incurred each month. He submitted the bills to Miseo because Defendant explicitly told him that she was authorized to approve the bills each month. Indeed, she authorized various changes to the plan as the project progressed and accordingly, Plaintiff continued to work. Id.at 3-5.
Plaintiff sought payment from Defendant for the additional completed work that was not included in the initial contract. Defendant paid him for a portion of the additional cost; however he refused to pay Plaintiff the remaining $89,581.36.  Id. at 3. Plaintiff filed suit in the Law Division of the Superior Court of New Jersey (the “Lower Court”) against Defendant for the balance due on a theory of breach of contract. Defendant asserted the defense to that claim by alleging Plaintiff’s contract violated the CFA in his counterclaim.  
The Lower Court dismissed the breach of contract claim because it determined that the contract violated the CFA regulations that govern home improvement contractors. However, the Lower Court permitted Plaintiff to proceed under quantum meruit against Defendant. Quantum meruit is an equitable principle that allows a person to recover for the reasonable value of his or her services that he or she has rendered. It applies when there is, either, no contract or the contract is deemed unenforceable. Based on that principle, the jury returned a $92,000.00 verdict in Plaintiff’s favor. Id.at 1.  
Defendant argued that Plaintiff should not have been allowed to proceed to the jury under quantum meruit because he violated the CFA. The Lower Court rejected that argument. It explained that Defendant was prohibited, based upon notions of fairness (equitably estopped), from invoking the CFA against Plaintiff because he was the one who induced the behavior. For example, Miseo, as Defendant’s representative, approved the bills, did not object to the fairness of the bills, nor did she indicate to Plaintiff that he should cease performance of the renovations. Id. at 4.
Defendant appealed to the Superior Court of New Jersey, Appellate Division (the “Appellate Court”). The Appellate Court explained that the CFA regulations governing home improvement contracts required the changes to the terms and conditions of a home improvement contract to be in writing and signed by all parties. Also, the regulations required that time and material contracts must clearly state the hourly rate for labor along with all other terms and conditions of the contract that affected the price. Furthermore, it stated that a violation of the CFA regulations were a per se violation of the Act. Id.  A “per se” violation was a violation that was unlawful on its face, requiring no further inquiry into the facts. Id. at 5.
However, one may be equitably estopped from asserting the CFA as a defense to withhold payment from a general contractor when it would be unjust to do so. In its holding, the Court cited D’Edgio Landscaping v. Apicella, 337 N.J. Super. 116 (App.Div.2004). In D’Edgio, the defendant  homeowner was equitably estopped from invoking the CFA against a contractor because defendant was the one who insisted that a written contract was unnecessary in light of their longstanding relationship. Id. at 6.
The Court also referenced Messeka Sheet Metal Co. Inc. v. Hodder, 368 N.J. Super. 116 (App.Div.2004) in which the plaintiff-subcontractor sued the defendant-homeowner to collect on a bill for installing air conditioners. In Messeka, the homeowner was not the one who hired the plaintiff. Rather, it was the homeowner’s general contractor who hired and directly dealt with the plaintiff. Therefore, because the CFA was designed to protect homeowners who deal directly with contractors, the defendant could not assert the CFA as a defense.  Id.

Accordingly, in this case, the Court explained that Defendant was equitably estopped from bringing a CFA counterclaim because:

1)      Similar to the defendant in Messeka, Defendant interposed his construction professional, Miseo, as an expert intermediary between himself and Plaintiff. Therefore he was not a vulnerable consumer who needed the CFA’s protection;
2)      Plaintiff disclosed the amended work and the rates charged for that work;
3)      Defendant and Miseo were aware of those rates and Miseo approved them on behalf of the Defendant;  and
4)      Miseo recognized the rates as fair and reasonable within the industry.  

Id. at 7-8.
Furthermore, the Court addressed Defendant’s argument that the Lower Court should not have allowed Plaintiff to proceed to the jury based on quantum meruit after determining that he committed consumer fraud. Id. at 14. The Court rejected Defendant’s argument. It stated that when a claim was stricken for failure to comply with the CFA regulations, the contractor could, under certain circumstances, proceed in quantum meruit. Thus, the Court upheld the jury verdict in favor of Plaintiff. Id. at 12.

Are New York Property Owners Entitled to Common Law Indemnification for a Third Party’s Injury by a General Contractor if That General Contractor Did Not Control or Supervise the Worksite?

In McCarthy v. Turner Construction, Inc., 17 N.Y. 3d. 369 (2011), Boston Properties, Inc. and Time Square Tower Associates, LLC (collectively “Property Owners”) leased a retail storefront to Ann Taylor, Inc. (“Ann Taylor”). Subsequently, by agreement (the “Agreement”), Ann Taylor engaged a general contractor, John Gallin & Son, Inc. (“Gallin”) to perform construction on its storefront.  The Agreement stated that Gallin was solely responsible for and in control of the construction and was required to take reasonable safety precautions to protect the workers from injury. Id. at 372.

However, Gallin did not perform the construction itself; Gallin engaged Linear Technologies Inc. (“Linear”) as its subcontractor.  Shortly thereafter, Linear hired Samuels Datacom, LLC (Samuels) as its sub-subcontractor. An electrician employed by Samuels (“Plaintiff”) was injured when he fell from a ladder while working on the project site. Subsequently, he brought an action in the Supreme Court of New York (“Lower Court”) for his injuries against Gallin and the Property Owners. Id. The Property Owners asserted a cross claim against Gallin for common law indemnification. Id. at 373. Indemnification is a legal concept that enables a defendant the right to be reimbursed for some or all costs associated with the suit by another person or entity.

The Lower Court held that the Property Owners and Gallin were vicariously liable for Plaintiff’s injuries. Vicarious liability is a legal concept that holds a third party responsible for the acts of another solely because of his or her relation to the actual wrongdoer. For example, under certain circumstances an employer could be held vicariously liable for his or her employee’s unlawful conduct.

Property Owners and Gallin  reached a settlement under which they each paid the Plaintiff $800.000.00. The settlement itself was not in dispute. Instead, the question before the Court was whether the Property Owners could recoup some or all of that money from Gallin.

The Lower Court rejected the Property Owners’ cross claim for common law indemnification because Gallin was not actively at fault in bringing about the injury. Id. at 373. Thus, the Lower Court held that Gallin was not required to reimburse the Property Owners for some or all of the $800,000.00 they paid to Plaintiff.

The Property Owners appealed to the Supreme Court of New York, Appellate Division (“Appellate Court”). The Appellate Court affirmed the Lower Court’s holding.

The Property Owners appealed to the Court of Appeals of New York (the “Court of Appeals”). In their appeal, they argued that they were entitled to common law indemnification by Gallin, whether or not Gallin directly supervised and controlled Plaintiff’s work, based upon the Agreement. Id. at 374. That was the central issue before the Court of Appeals: whether a person or entity that does not supervise or control another can be liable to indemnify for the damages that party causes.

First, the Court of Appeals considered Labor Law §240(1) which imposes upon owners and general contractors and their agents a nondelegable duty to provide safety devices necessary to protect workers from the risks inherent in elevated work sites. Further, the Court of Appeals noted that  §240(1) holds owners and general contractors absolutely liable for any breach of the statute, even if the job was performed
by an independent contractor whom they did not supervise nor control.

Having said all of that, the Court of Appeals nevertheless held that a general contractor’s authority to supervise the work and implement safety procedures was not a sufficient basis for requiring common law indemnification. It explained that liability for indemnification may only be imposed against parties who exercised actual supervision. Thus, the Court asserted that a common law indemnification claim did not lie against a party who had contractual authority to direct and supervise the work at a job site but never exercised that authority because it subcontracted its contractual duties to another.  Id. at 378.

The Court of Appeals also noted that an owner or general contractor, who was not at fault for the misconduct, still has the right to seek full indemnification from the party who was actually responsible for the accident.  Id.  A party’s right to indemnification may not only arise from a contract but may have also be based upon equity (what is fair and proper between the parties). Common law indemnification is generally
available in favor of an innocent party who was held vicariously liable for the wrongdoing of another.  Id. at 375.

In its analysis, the Court explained that although the Agreement required Gallin to supervise and direct the work at the worksite, such a provision was insufficient to establish that Gallin actually supervised or directed
Plaintiff’s work. The Court noted that this was especially so considering the following facts:

  1.  Gallin had no supervisory authority over Samuels’ (Plaintiff’s employer’s work) work.
  2. Gallin would not have directed Plaintiff as to how to perform his work.       and 
  3. Gallin did not provide any tools or ladders for the subcontractors that worked at the
    site.

Id.

Therefore, the Court affirmed the dismissal of Plaintiff’s cross claim for common law indemnification, holding that Gallin did not actually supervise, nor direct, Plaintiff’s work. Id. Thus, Gallin did not have to compensate the Property Owner for any of the $800,000.00 they paid to Plaintiff in order to settle his personal injury claim.

Does a Homeowners’ Association’s Sign Prohibition Trump Residents’ Free Speech Rights?

In Mazdabrook Commons Homeowners Assn v. Khan, 210 N.J. 482 (2012), the New Jersey Supreme Court recently held that a homeowners’ association’s rules that banned the posting of political signs on property owners’ residential units was unconstitutional.

In that case, Wasim Khan (Defendant) was a resident of Mazdabrook Commons, a planned townhouse community that was managed by a homeowner’s association, (Plaintiff). When Defendant ran for town council, he posted at his private residence two signs in support of his candidacy. Plaintiff notified
him that the signs violated the association’s rules and ordered him to remove them.

Plaintiff brought suit in the Superior Court, Law Division, Special Civil Part (Lower Court) based upon an objection it had to the Defendant’s rose garden. Defendant filed a counterclaim against Plaintiff, claiming that its sign restrictions violated his free speech rights under the New Jersey Constitution (State Constitution). The Lower Court dismissed Defendant’s counterclaim and held that the sign restrictions did not violate his constitutional rights. Id. at 489.

Defendant appealed to the Appellate Division of Superior Court of New Jersey (Appellate Court). The
Appellate Court explained that the sign restrictions were not content-neutral; favored commercial speech; and foreclosed an entire type of communication that had long been recognized as significant. Accordingly, it held that Plaintiff’s sign restrictions were unconstitutional. Id. at 489-490.

Shortly thereafter, Plaintiff appealed to the New Jersey Supreme Court (Court). Plaintiff argued that a private residential community did not violate free speech rights by the enforcement of rules agreed to by all
unit owners. Plaintiff cited the fact that the unit owners received various documents in connection with the purchase of their townhome. Those documents restricted the posting of signs. Id. at 487.  For example, the document entitled Rules and Regulations specified that [n]o signs of any kind will be placed in or on windows, doors, terraces, facades or other exterior surfaces of the buildings or Common Facilities Id. at 488.

In its analysis, the Court explained that the State Constitution guarantees individuals a broad, affirmative right to free speech.  Id. at 492. The Court quoted the relevant portion of the State Constitution as follows:

[e]very person may freely speak, write and publish his sentiments on all subjects, being responsible for the abuse of that right. No law shall be passed to restrain or abridge the liberty of speech or of the press.  

 N.J. Const. art. 1.6; Id. at 492.

The Court noted that the affirmative guarantee in the first sentence of that provision offers greater protection than the First Amendment. The First Amendment bars the government from restraining speech. However, in New Jersey, an individual’s affirmative right to speak freely, in certain situations, is protected not only from
unreasonably restrictive and oppressive conduct by the government, but also from private entities. Id. at 493.

Next, the Court applied the three-factor test outlined in State v. Schmid, 84 N.J.  A. 2d 615 (1980), to determine the parameters of free speech rights on privately owned property. Under that test, courts considered the following three factors:

(1) the nature, purposes, and primary use of such private property, generally its normal use;

(2) the extent and nature of the public’s invitation to use that property; and

(3) the purpose and the expressional activity undertaken upon such property in relation to both its private and public use.

  Id. at 494.

Furthermore, the Court applied the balancing test laid out in Coalition Against War in the Middle East v. JMB Realty Corp., 138 N.J. A. 2d 757 (1994). In that case the court considered not only the three-factor test, but also applied a balancing test. That test required the Court to weigh a private property owner’s interest in controlling activities on their property against the limited and important free speech right sought. Id.

Factor One

The Court applied the three Schmid factors. In regard to the first factor, it explained that Plaintiff was a common-interest community. The nature of the property was distinguishable from other forms of real property because there was a commonality of interest. Thus, owners had to comply with certain common
restrictions for the overall benefit of the development.  Id. at 499.

Factor Two

In regard to the second factor, the Court explained that the property was not public because there was no broad invitation to travel to, or shop in, the development. On the other hand, the importance of the second
factor was muted due to the fact that Defendant was not an outsider or visitor; rather, Defendant was the owner of the restricted property.

Factor Three

In its analysis of the third factor, the Court stated that Plaintiff restricted political speech which lied at the core of our constitutional free speech protections. Further, it explained that free speech protections assumed particular importance in the context of a person campaigning for public office.

Candidates have a constitutional right to engage in discussion of public issues and to vigorously and tirelessly advocate their own candidacy. Accordingly, the Court held that factor three favored Defendant because Plaintiff’s sign restrictions prevented Defendant from advancing his own candidacy for Town Council by posting signs at his residence. Id. at 499-500.

The Balancing Test

Further, the Court stated that Plaintiff’s sign restriction was a near-complete ban on residential signs. On the contrary, Defendant’s use of his signs constituted only a minimal interference with the Plaintiff’s property or common areas since they were placed on his own private residence. Therefore, the Court determined that Defendant’s right to promote his candidacy outweighed the relatively minor interference his conduct posed to the private property interest. Id. at 500-501.

Accordingly, the Court held that Plaintiff’s sign restrictions were unreasonable and in violation of the State Constitution.  As such, it deemed the documents that memorialized the sign restrictions unenforceable. However, the Court did reaffirm an association’s power to adopt reasonable time, place, and manner
restrictions to serve the community’s interest. Id. at 507.

Comments/Questions: gdn@gdnlaw.com

2013 Nissenbaum Law Group, LLC